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IBD Stock Of The Day Forges Early Entry

Steel Dynamics

Steel Dynamics

STLD


$1.56


2.46%


IBD Stock Of The Day Forges Early Entry21%

IBD Stock Analysis

  • Working on consolidation with 74.47 buy point
  • Flashes early entry clearing 50-day line
  • Earnings, sales growth accelerate for 4 quarters to 873% and 118%, respectively
IBD Stock Of The Day Forges Early Entry

Composite Rating

IBD Stock Of The Day Forges Early Entry

Industry Group Ranking

IBD Stock Of The Day Forges Early Entry

Emerging Pattern

IBD Stock Of The Day Forges Early Entry

Cup

* Not real-time data. All data shown was captured at
1:39PM EDT on
10/20/2021.

Steel Dynamics (STLD) is the IBD Stock Of The Day as the Fort Wayne, Ind., steelmaker, already churning out record profits, gets set to fire up its new Sinton, Texas, flat roll steel mill before year-end. STLD stock cleared an early entry point in Wednesday’s stock market action, continuing its rally that followed Monday afternoon’s Q3 report.




X



The start of the week didn’t look so promising. Steel stocks sold off early Monday, as Morgan Stanley analyst Carlos De Alba said investor worries that steel prices have peaked would quash any near-term rally. De Alba downgraded STLD stock to equal weight from overweight, cutting his price target to 61 from 77.

Nucor (NUE), Cleveland-Cliffs (CLF) and U.S. Steel (X) also got price-target reductions, while X stock was cut to underweight.

So why is STLD stock surging this week, as the rest of the group sees modest to moderate gains?

Why Steel Dynamics Stands Out

At a time when the whole industry is thriving, a few things stand out about Steel Dynamics. For one thing, it’s getting more mileage out of its operations than its peer group as a whole, a validation of its strategic decisions.

“During the third quarter, the domestic steel industry operated at a production utilization rate of 85%, while our steel mills operated 93% due to our product diversification, high proportion of value-added mix and supply-chain differentiation,” CEO Mark Millett said on the earnings call Tuesday morning.

Despite now being relatively close to operating at maximum capacity, Steel Dynamics still could see a 15%-20% increase in shipments in 2022, Deutsche Bank analyst Sathish Kasinathan wrote in a Tuesday note. To a large extent, that growth reflects the coming launch of production at its new flat roll steel mill, which is expected to ship up to 2.2 million tons next year.

“While a correction in HRC (hot rolled coil) pricing could temporarily weigh on share prices, we have a relative preference for Steel Dynamics given the strong volume growth,” Kasinathan wrote. He reiterated a buy rating and 98 target for STLD stock.

In Q3, Steel Dynamics bought back $338 million of STLD stock, about 3% of the total. Kasinathan noted that he sees potential for increased shareholder returns once the Sinton mill is complete and capital expenditure takes a step down.

By contrast, Nucor and U.S. Steel have big spending projects in front of them. Nucor recently said it will build a $2.7 billion sheet mill with a capacity of 3 million tons. Meanwhile, U.S. Steel is looking to build a $3 billion, 3-million-ton minimill.

And the bottom line is the bottom line: Steel Dynamics’ earnings growth has accelerated for four straight quarters, to a white-hot 873% in Q3. Revenue growth has also sped up over that span, to 118%.


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STLD Stock

Steel Dynamics stock rose 2.5% to 65.06 in Wednesday’s, clearing its 10-week and 50-day moving averages.

While rising past that key technical level in above-average volume, STLD stock has also broken clear of the down-sloping trendline from its 74.37 record high on Aug. 13.

While still about 12% below an official buy point, a break above the 10-week and 50-day lines offers an attractive entry point for leading stocks, particularly when that line is above its prior buy point. That’s the case for STLD stock, according to a MarketSmith analysis. STLD stock first broke above a 63.28 buy point from a double-bottom base on July 29.

Steel Dynamics stock also qualifies as a leader, earning a superlative 99 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time winners often have a Composite Rating of at least 95 near the start of big runs.

STLD stock has climbed 5.1% this week vs. 3.4% for Nucor, 1.6% for X stock and 1.1% for CLF stock.

Nucor reports Q3 results early Thursday and Cleveland-Cliffs on Friday morning. U.S. Steel earnings are due Oct. 29.

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